THE SUMITOMO AFFAIR:
THE TABLES TURN

Cousineau, Sophie

This is not the first time that Herbert Black has become buddy-buddy with a man in charge of chasing criminals of the Exchange. In 2000, the head of the American Iron & Metal Company hired a lawyer and an investigator from the committee responsible for overseeing the U.S. market for long-term contracts on raw commodities.

Like Paul Trudeau, a Quebec investigator who was fired for accepting a $1,000 from Herbert Black, Dennis O'Keefe will pay the price. As of December 31st, this lawyer can no longer practice law because of having leaked confidential information to Herbert Black. To understand this story, we must return to June 13th, 1996. On that day, the largest trader of copper in the world, Sumitomo, made a shock revelation. In mid-May, the Japanese organisation suspended its chief copper trader, Yasuo Hamanaka, for secret, unauthorised transactions. Sumitomo estimated its losses at USD1.8 billion over 10 years.

Yasuo Hamanaka had Sumitomo placed in a buyer’s position. In this way, long-term contracts and stock options could force the company to purchase up to 2 million tonnes of copper, which artificially raised the price of the metal. By confessing, Sumitomo committed to collaborating with stock market authorities in the United Kingdom and the United States. They also began to slowly undo the commitments entered into by Yasuo Hamanaka, so as to not trouble the copper market. In order to do so, they made a call to Goldman Sachs.

At the same time, in addition to trading on the copper market, Herbert Black is trading on the London Metal Exchange (LME) as well as on the Commodity Exchange in New York (Comex). However, the Montrealer speculates on the decrease in the price of copper, judging the global inventories to be superior to the demand. In late 1995, early 1996, he loses money. But after the suspension of Hamanaka in mid-May, the price of copper begins to fall and he reaps the profits. He will say to the newspaper, The Guardian, that he pocketed USD30 million. To La Presse Business, "more than USD50 million." Nevertheless, Herbert Black speculates to have lost money due to the manipulation of the copper market by Sumitomo, and he complains to the Commodity Futures Trading Commission (CFTC), which is already investigating. It is in this way that he meets Dennis O'Keefe, Deputy Director of Compliance with the CFTC.

Dennis O'Keefe pilots the investigation of Sumitomo for the CFTC. In October 1997, he records the testimony of Herbert Black. The two men meet often thereafter. Black passes the information to O'Keefe while urging him to investigate or to intercede on his behalf, which he would eventually do. Thus Mr. O'Keefe opens an investigation of the English broker Brandeis. For his part, the lawyer will keep Herbert Black informed of developments in the investigation of Sumitomo and will advise him on how to reclaim the CFTC documents with the Freedom of Information Act. The two men are so close that in 1999, Black and one of his lawyers meet O'Keefe in China while he is working on the Sumitomo case.

In the summer of 2000, Dennis O'Keefe learns that Herbert Black is looking for a lawyer. In the fall, the two men secretly negotiate the employment contract, while Dennis O'Keefe fails to inform his superiors that he was extracting folders on the copper market. The lawyer must receive a salary of $200,000, plus bonuses that will be established according to compensation Herbert Black hopes to obtain from the courts for his losses on the copper market (5% of the first $50 million, 10% of any excess amount). Dennis O'Keefe leaves the CFTC in December 2000. He brings with him a wealth of documents, including confidential interviews related to the Sumitomo case, even though this is prohibited by the Commission's policy.

Herbert Black will use these documents. He takes legal action against Sumitomo in the United States in April 2002, six years after the scandal broke out. He blames the company and two other defendants, the merchant Global Minerals & Metals and brokerage firm Merrill Lynch, for having manipulated the prices of future contracts on copper from June 1994 to June 1996. He estimates his losses at more than USD130 million.

For 12 years, the accounting firm Ernst & Young has recognised entrepreneurs in every region of Canada.
In the spring, they invite applications from founders and business owners. An independent jury selects the finalists from the files sent to them by Ernst & Young.

In 2005, the jury for Quebec consisted of eight people. They were: Marc DeSerres, President, Omer DeSerres; Jean-Marc Leboeuf, President, The Createch Group; Kazimir Olechnowicz, President and CEO, CIMA+; Michel Pigeon, Chancellor, University of Laval; Nathaly Riverin, Director, Surveillance of Entrepreneurial Culture in Canada Centre; Jean-Luc Sansregret, Vice President, Biogenie SRDC; Howard Stotland, Founder, STS Infomatique; and Annie Thabet, Associate, Celtis Capital.

It was this jury who chose Herbert Black as the best entrepreneur in the category of products and services for businesses. Before granting an award, the jury evaluates the candidates according to six criteria. Integrity is one of them, in addition to entrepreneurship, innovation, influence, financial success and contribution to the community.

Despite the media coverage of the JITEC case, Herbert Black’s role in it was never mentioned during the discussions by the jury, said one of its members. "Nobody has mentioned the negative elements," said the member, who also says that the jury's decision was based on the financial performance of the American Iron & Metal Company. The jury received access to the confidential results that were verified by a private company.
"There are plenty of people who are accused and are subsequently cleared. He (Herbert Black) is not even accused. We should perhaps give him the benefit of the doubt," said François Dufresne, contest director.

"I think the jury chose to recognise his entrepreneurial skills,” says the associate of Ernst & Young. “I don’t think it would have happened if Mr. Black was guilty of any offense."

In May 2002, Herbert Black instituted another suit against Sumitomo, in England this time. He wasn’t only going after Sumitomo for the settlement that his negotiator had already secretly finalised, but for the manner in which it had abandoned its position with the help of Goldman Sachs in the summer of 1996. Herbert Black likens this liquidation to a manipulation. He calculates that all those who, like him, short sold the copper should have profited from the plummeting price of metal. Because of the profits that he could not take in, he estimates his loss to be at least USD126 million.

In its defense, Global says that Herbert Black has "history": on several occasions, he would "corrupt" individuals and convince them to “betray” the trust that had been confided in them.

"In this case, Herbert Black broke the law by persuading Dennis O'Keefe, a government official with extensive privileged and confidential information belonging to the government, to leave his post, for the purpose of extracting confidential information from him in order to pursue legal action.”

Several witnesses were heard in the American case, one of whom was Dennis O'Keefe. He admitted that he had perjured himself in regards to the computer virus that had supposedly destroyed his emails and other documents. But before the case could end to no avail, Herbert Black decides to withdraw his suit and agrees to compensate those he was suing, without suffering any damage whatsoever. He will deposit $5 million to the three defendants ($4.47 million to Sumitomo, $450 000 to Global and $80 000 to Merril Lynch).

The out-of-court settlement, approved by a judge of the Federal Court of New York in April 2003, foresees that Herbert Black abandons with compensation (dismiss with prejudice) the prosecution in England. It also decrees that Herbert Black returns all evidence (documents, testimonies) obtained illegally to the government.

Sumitomo complained of dealings with Dennis O'Keefe to the bar of the District of Columbia. The bar has conducted a disciplinary investigation and concluded that the lawyer had violated 11 rules of the Code of Ethics. But before the hearing began, Dennis O'Keefe agreed to be struck off in late September.

In doing so, he acknowledged that "the facts that support the allegations of professional misconduct are true" and that he "failed to prove his innocence."